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Biofuels production versus forestry in the presence of lobbies and technological change

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  • Hammes, Johanna Jussila

    () (VTI)

Abstract

We study the political determination of a hypothetical land tax, which internalises a negative environmental externality from biofuels. The tax allocates land from biofuels towards forestry. Lobbying affects the tax rate, so that the sector with the lower elasticity of land demand determines the direction in which the tax deviaties from the social optimum. Lobbying by the sector with higher elasticity of land demand cancels partly out the other sector's lobbying. The politically optimal tax rate is "self-enhancing" in that the tax lowers the elasticity of land demand in the sector which initially had a lower elasticity, and raises it in the other sector. This can dwarf the government's other attempts to support the production of biofuels. Finally, technological progress in biofuels serves to strengthen that sector by lowering its elasticity of land demand, and weakens the forestry sector by raising its elasticity of land demand. Depending on the initial tax rate, this can be welfare enhancing or lowering. Furthermore, it can lead to excessive deforestation.

Suggested Citation

  • Hammes, Johanna Jussila, 2009. "Biofuels production versus forestry in the presence of lobbies and technological change," Working Papers 2009:7, Swedish National Road & Transport Research Institute (VTI).
  • Handle: RePEc:hhs:vtiwps:2009_007
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    File URL: http://www.transportportal.se/SWoPEc/Biofuels_production_versus_forestry_in_the_presence_of_lobbies_and_technological_change_03Jul09.pdf
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    More about this item

    Keywords

    Biofuels; forestry; land use; political economy; technological change;

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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